Current deal just took a strange turn

Joseph Parker · 2018-03-31T18:10:35-07:00

Went under contract on a 5-unit office/retail property this past week. Was on the market for a year, few offers made but none good enough for seller to accept.Was able to talk seller into a lease with option (seller financing) at a good price and very low interest rate that banks can’t touch.This is a turnkey property, all five units occupied but two leases expiring soon. I was told both of those tenants intend to renew so I’d be taking ownership fully leased.Today, out of nowhere the broker is telling me one of those tenants does not intend to renew and another is probably leaving as well (both expire end of April). Also informed me they received a cash offer that the seller is very interested in and kind of what he wanted all along versus seller financing due to his age and health. They are asking for a mutual release from the contract so he can take the cash offer.Obviously it’s up to me to decide what to do since we’re under contract. Seems that they’re trying hard to get me to back out of the deal. I hate the thought of taking ownership with two vacancies but I can also get new, longer leases in there at market rates. Just always a risk not knowing how long I’ll have to float those vacancies.Really wasn’t expecting any of this and kind of blindsided today, expecting to close around April 13th. I know it’s my decision ultimately, but I guess I’m just looking for advice or opinions...? This is my first commercial office/retail deal, in a great location and I don’t want to screw it up. I liked the idea of a fully leased property, and the idea of two vacancies from the start are kind of scaring me a little.

Paul Choi

Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes

8y

@Joseph Parker thanks for the info. I can see why banks see the risk. I typically sign 5 year leases for my commercial property and sometimes longer with annual rent increases already in place.

Have you gone back to the bank with those lease commitments and see what their perspective is? Are they NNN leases?

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

@Paul Choi definitely not NNN leases. While the property is in a great location, busiest street in the city with many NNN lease tenants in the area, this property itself consists of two small buildings, one built in the 70's, other early 80's. Total sq ft around 6,000 split up between the five tenants (some have more space than others). So not a property that would attract large NNN tenants, however one tenant is a national company who does 5 year leases. Others are local businesses/mom & pop, so typically 2-3 year around here.

I haven't gone back to the bank with lease commitments because A) the termination just occurred Monday, so I spent the first day or two wrapping my head around what happened and seeking advice, not considering trying to get a deal to work out, and B) I never received the lease agreements back from the agent. Since it was under contract, I typed.signed the leases, then he had to go to the tenants and present the new leases, and simply told me when the tenant agreed to renew/extend. Then suddenly, after they received the other cash offer, the agent informed me that the other two tenants were considering not renewing, kind of out of nowhere - making me think at the time that he may be fibbing in an attempt to persuade me to back out of the deal. Lol

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

@Jay Hinrichs @Jim Cummings My plan is to notify the managing broker tomorrow of my intent to file a complaint with either the local Realtors Association of Central Indiana, or the State Association.

I did hear from multiple IN realtors today that a Limited Agency Agreement should have been signed from the start, detailing roles and responsibilities of the agent from that point forward (acting as a dual agent - called limited agent here). Nothing like that was ever signed.

One question I never asked is, how long can I actually wait to sign the mutual release/termination? Can I get in any kind of trouble for waiting more than X amount of days? It's been 3 so far (actually 2 since I received the final release signed by seller, agent & managing broker), but how long does someone have to sign it?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

8y

Originally posted by @Joseph Parker:

@Jay Hinrichs @Jim Cummings My plan is to notify the managing broker tomorrow of my intent to file a complaint with either the local Realtors Association of Central Indiana, or the State Association.

I did hear from multiple IN realtors today that a Limited Agency Agreement should have been signed from the start, detailing roles and responsibilities of the agent from that point forward (acting as a dual agent - called limited agent here). Nothing like that was ever signed.

One question I never asked is, how long can I actually wait to sign the mutual release/termination? Can I get in any kind of trouble for waiting more than X amount of days? It's been 3 so far (actually 2 since I received the final release signed by seller, agent & managing broker), but how long does someone have to sign it?

I don't think the realtor associations will deal with this.. its the STATE DEPARTMENT OF REAL ESTATE the associations are for squabbles between agents.. not the public.. the state deals with the public.

Also you never have to sign the termination.. all that does is release your EM if in deed it was ever deposited..

the seller can simply open escrow at another title company and close and completely ignore you.. you can then litigate if you wish for damages.

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Jim Cummings

Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes

8y

@Joseph Parker. the Local & State Association OF REALTORS is for disputes between Agents / Brokers. Your situation & grievance is something to be handled by the Indian State Real Estate Licensing Agency. Go here for more details: http://www.in.gov/pla/3638.htm .

@Jay Hinrichs is correct! There is no time line for your to Sign the Release. Suggest you consult with your attorney about the ramifications of Signing / NOT Signing the Release.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

8y

Originally posted by @Jim Cummings:

@Joseph Parker. the Local & State Association OF REALTORS is for disputes between Agents / Brokers. Your situation & grievance is something to be handled by the Indian State Real Estate Licensing Agency. Go here for more details: http://www.in.gov/pla/3638.htm .

@Jay Hinrichs is correct! There is no time line for your to Sign the Release. Suggest you consult with your attorney about the ramifications of Signing / NOT Signing the Release.

I find it kind of humorous all the those who really have no clue as to how licensing works always say file a complaint with the local board.. which has no jurisdiction in these instances.. and all the other miss information this guy has gotten..

The seller on this deal could just walk to the next title company open escrow and close and be done with this buyer..

if this buyer feels strongly then he can hire an attorney and try to sue.. but that cost money and that's usually when buyers end the I have been wronged campaign.. filing with the state is free and or like I said there could be a E and O claim here.. because there was an Error and there was some omission but I don't actually know if it goes to agency issues like this appears to be... But when my agents got in hot water and someone made a claim E and O would settle on the spot for the deductible of 5k..

The state could reprimand this agent for this .. they could suspend them they could revoke.. depends on how the state looks at it.

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

@Jay Hinrichs @Jim Cummings you gentlemen have been MUCH more helpful than anyone around me, other local realtors included!!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

8y

Originally posted by @Joseph Parker:

@Jay Hinrichs @Jim Cummings you gentlemen have been MUCH more helpful than anyone around me, other local realtors included!!

well 44 years of selling real estate owning 3 brokerages and managing a few hundred agents will do that to you LOL..

and generally speaking real estate law is pretty universal in the US with minor differences but the law of agency is pretty universal.

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Jim Cummings

Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes

8y

@Joseph Parker. This is my take from the Agent's standpoint on how this should have been handled IN TEXAS. These procedures may have ZERO applicability to Indiana RE Law & Procedures, but as @Jay Hinrichssays, Law of Agency is fairly Universal.

1. At first meeting, Agent should have asked if you had an Agent representing you.

2. In Texas required to present you with a disclosure called "Information about Brokerage Services" outlining the various relationships Agents can form with a prospective Buyer.

A. Disclose they Represent the Seller.

B. Could Represent the Buyer with proper authorization (Signed Agreement).

C. In Texas, Under certain circumstances, the Brokerage could handle the transaction for both parties by appointing one Agent to represent Seller, and another Agent to represent Buyer. This requires the full DISCLOSURE & AGREEMENT of both Buyer & Seller.

D. Inform prospective Buyer, of the option of finding an Agent of their choosing to represent their interests in the transaction.

E. A Single Agent could represent the Seller, and handle the Buyer side of the transaction as a Customer (NOT REPRESENTED) by the Brokerage.

Agent should have disclosed the Familial Situation fairly early in the transaction. In Texas disclosure of this type is required in the Multiple Listing Information. The Texas Real Estate Commission (in my opinion) would look with a very jaundiced eye on a Agent with a Father-In-Law / Son-In-Law relationship to be an unbiased Agent and represent both parties. Furthermore, Texas does NOT recognize Dual Agency.

When this transaction went South, the Agent and Brokerage really disclosed (by action) who they truly represented by reverting to solely defending and trying to advance the Seller's interest, to the negation of any consideration of the Buyer - who they also purported to represent.

Hope this helps.

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Greg H.Pro Member

Moderator

Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

8y

@Jim Cummings

A brief search indicates that Indiana allows a duel agent which Texas does not

Additionally, the IABS form while encouraged can be verbal which more than certainly has been established here via text/email

For the record, I would not let this go. I would pressure the broker and agent as the agent was clearly applying pressure to terminate at the disservice of his client(buyer)

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Matt M.

Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes

8y

PLEASE see the complaint through to the end. Make sure to leave an online review on google, etc.

Also, if you get into a lawsuit, a simple google search will pull up this thread with your whole story lined out. FYI

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George-Hyuung W.

Specialist · New York, NY (newyork) · Member since 2016 · 13 posts · 5 votes

8y

@Joseph Parker It sounds like it all depends on what your current goals are. Are you in a situation where you need quick cash and have another hot looking deal you could apply the quick cash to? If not, and you're not pressed for cash, I would stick to the plan and proceed.

From the mentors here on BP, I have learned that having NO tenants can be a very helpful situation (assuming you properly set aside money for vacancy rate). In my gut, I feel they really want the deal given to YOU. Please keep us in the loop sir and am inspired to hear about your progress!

George

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

@Jim Cummings @Jay Hinrichs I notified the managing broker of my intent to file a complaint with the State Licensing Authorities. I noted that while I will accept the mistake I made, and acknowledge that the seller did what he could do, I don't think it is fair to solely place the blame on just myself and the seller. I believe there were multiple missteps, misjudgments and mistakes made on the part of the agent.

I stated the basis for my complaint, previously mentioned in this thread (did not sign Limited Agency Agreement which would provide informed & written consent to the agent to represent both seller & buyer, along with defining the limited role the agent plays in the transaction - what he can and cannot disclose without written consent by either buyer or seller)(Also, failure to disclose the agent's relationship to the seller, at least as a professional courtesy if it is not required as it is a critical piece of information, especially once the seller wanted me to back out of the deal)

I also highlighted some of the exact quotes exchanged between myself and the agent - same ones mentioned in my earlier post referring to the meeting with my attorney.

This detailed email was an attempt to allow the managing broker to have the full details of what occurred, in writing rather than through a verbal exchange. I've known the broker since I was very, very young, am best friends with her son, etc. - so I was hoping to use this as a way to receive a formal apology from her, acknowledgment of mistakes made that may have affected the outcome, and a possible resolution. I really want/hope to avoid bad feelings going forward, but can't allow her to think there was no fault by the agent.

Below is her response, just so you guys can see how an Indiana managing broker reacts to this situation (names edited out):

"I understand that you feel that there were missteps and misjudgments made on this transaction. Additionally, I understand your continued disappointment and unhappiness in the results.

Many people agree to dual/limited agency situation from the beginning when they make the choice to call the listing agent. Many times buyers feel that they could get more information, better terms and possibly a lower price by choosing that avenue. It is the buyer who chooses what agent that will represent them. I believe that (agent) did his best to be honest and forthcoming in his dealings with you. Commercial Real Estate transactions do not have as many rules and regulations as residential real estate. For example, Seller’s Disclosures are not required in commercial real estate transactions. I guess the government feels that the previous “Buyer Beware” rules no longer apply for residential transactions but still exist somewhat for commercial.

I want the very best for you as I have always treated you as one of my own children. This is/was a tough transaction. I understand your inability to just let it go. I do not disagree that the outcome could have very easily been different."

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

Additional note - was led to the following contained within Indiana State Code Title 25-34.1-10-12

(a) A licensee may act as a limited agent only with the written consent of all parties to a real estate transaction. The written consent is presumed to have been given and all parties are considered informed for any party who signs a writing or writings at the time of entering into an agency relationship with the licensee that contains the following:

(1) A description of the real estate transaction or types of real estate transactions in which the licensee will serve as a limited agent.

(2) A statement that in serving as a limited agent, the licensee represents parties whose interests are different or even adverse.

(3) A statement that a limited agent shall not disclose the following without the informed consent, in writing, of the parties to the real estate transaction:

(A) Any material or confidential information, except adverse material facts or risks actually known by the licensee concerning the physical condition of the property and facts required by statute, rule, or regulation to be disclosed and that could not be discovered by a reasonable and timely inspection of the property by the parties.

(B) That a buyer or tenant will pay more than the offered purchase price or offered lease rate for the property.

(C) That a seller or landlord will accept less than the listed price or lease rate for the property.

(D) What motivates a party to buy, sell, or lease the property.

(E) Other terms that would create a contractual advantage for one (1) party over another party.

(4) A statement that there will be no imputation of knowledge or information between any party and the limited agent or among licensees.

(5) A statement that a party does not have to consent to the limited agency.

(6) A statement that the consent of each party has been given voluntarily and that any limited agency disclosure has been read and understood.

(b) . A licensee acting as a limited agent may disclose and provide to both the seller and buyer property information, including listed and sold properties available through a multiple listing service or other information source.

(c) A cause of action does not arise against a licensee for disclosing or failing to disclose information in compliance with this section, and the limited agent does not terminate the limited agency relationship by making a required disclosure.

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Rich S.

Central, MN · Member since 2015 · 148 posts · 184 votes

8y

I have no experience in deals of this sort, but the premise that the broker is taking no blame, nor is she placing any on the agent AND using her personal history of relationship with you in her response would give me enough principle to not go quietly. She's hoping she can use her personal history with you to have this go away... I'd call her bluff.

1 Reply

Liz Cole

Camano Island, WA · Member since 2017 · 91 posts · 42 votes

8y

@Joseph Parker It's wonderful that you decided to write the letter. You're obviously on the right track with your career and look forward to following your success.

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Liz Cole

Camano Island, WA · Member since 2017 · 91 posts · 42 votes

8y

@Joseph Parker check and see if your state has a specific Buyer Agent contract and start working with people who legally represent you. I haven't been an RE Agent in a couple decades (!) but we had contracts that we could use with buyers if that is who we represented otherwise, regardless of what side of the deal we were on, we represented the Seller.

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

8y

I read about half of this thread but it is very long.

When I do commercial real estate deals if something is to be counted as business days then it is written as business days and not just (days). You do not want things left open to interpretation. When people ASSUME things you know what happens (people make an a## out of you and me).

In regards to representation read the purchase and sale contract. Dual agency is allowed in some states and not others. There can be also designated agency where one agent in a brokerages represents one client and the other agent another client.

What type of agencies are allowed varies by state.

There is another selection where the listing broker represents the seller and then a box is checked that the broker does not represent the buyer. In this respect the buyer is a (customer) but not a client and as such the broker is performing MINISTERIAL ACTS for them.

These are basically helping with basic forms etc.

Example: http://www.mdrealtor.org/Legal/Legal-Hotline/Frequ...

Given that you were doing owner finance maybe the answer is to recoup your sunk costs plus additional money upside to terminate the contract. You then move on instead of putting a ton of time and effort into this.

Good Luck. No legal advice given.

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Joseph Parker

OP

Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes

8y

@Joel Owens Thanks, Joel.

I was told by the managing broker that the agent was in fact representing both the seller and myself, the buyer.

A few local Indiana realtors then informed me that a Limited Agency Agreement should have been signed from the start, stating the agent’s role and “limited” responsibilities to each of us from that point on. (The exact state law was posted a few posts above). That law was broken as nothing was ever signed by either of us, and therefore I wasn’t aware of the limited representation I’d be getting during the process. I relied on his guidance and advice when fulfilling all the contract obligations and deadlines, which had I known differently, I would’ve either contacted my own agent or done all of the work myself.

Lesson learned. Never get into a limited agency/dual agency situation again. And never use this brokerage again.

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Scott Huggins

Rental Property Investor · Charleston, SC · Member since 2015 · 91 posts · 32 votes

8y

Joseph

I think you and the agent both just learned valueable lessons so file that away and learn from it and remember it on your next transaction. I am sure I speak for most in this business that we all made our fair share of mistakes and it is part have of the learning process.

Putting my agent hat on always assume unless you hire a buyer agent that the other agent works for the seller and that will help keep things in prospective. As such that seller agent and has his sellers best interest in mind.

Hire a commerical buyer agent to walk you through your next transaction or two. I have been in real estate for many years and I don’t hesitate to hire an agent or attorney in another market to be my boots on the ground and work for me and look out for my best interest so no shame in doing so. Most of the time it can mostly be paid for out of the seller agent commission too.

In real estate signed written agreements always supersede anything else in real estate transactions. Also commerical real estate doesnt offer the same protections as residential and due diligence burden is on you as the buyer.

Know whether business days or calendar days are being used and stipulate it in the contract.

Sellers and buyers can back out of a transaction up to the day of closing. Whether or not pursuing a breach of contract claim is worth the time, money and sleepless nights, we’ll that is a horse of a different color.

I don’t think the agent acted with malice or ill intent but maybe could have handled it better sure.

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Current deal just took a strange turn

Current deal just took a strange turn

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